Feb. 4, 2024
Subject: Opposition to Proposed Rule Change SR-OCC-2024-001 Dear Securities and Exchange Commission, I am writing to express my strong opposition to the proposed rule change by the Options Clearing Corporation (OCC), as outlined in SR-OCC-2024-001. This proposal addresses the adjustment of parameters for calculating margin requirements during periods of high market volatility. The extensive redaction of details in the proposal raises significant concerns as it impedes meaningful public review and comment, limiting transparency and accountability. The attribution of the need for adjustments to the failure of U.S. regulators implies that regulatory shortcomings are the primary cause. However, the real issue extends beyond regulatory lapses to market participants abusing their positions, including practices like excessive naked shorting. The proposed reduction in margin requirements to protect Clearing Members may inadvertently heighten risks for the OCC and the broader financial system. The use of over 200 instances of "idiosyncratic" control settings in less than four years raises concerns about their consistency, necessity, and potential impact on market integrity. The rules create an uneven playing field where Clearing Members repeatedly benefit from reduced margin requirements, disadvantaging other market participants. Additionally, the proposal appears to make Clearing Members, even those poorly managing risks, de facto "Too Big To Fail," posing potential risks to the stability of the financial system. Moreover, the role of the Financial Risk Management (FRM) Officer is a cause for concern, as they are tasked with safeguarding both OCC's interests and at-risk Clearing Members. This concentration of responsibility raises questions about impartial risk assessment and management. In light of these issues, I propose the following modifications to the rule: Increase and enforce margin requirements to align with Clearing Member risks, preventing excessive risk-taking and avoiding the "Too Big To Fail" scenario. Introduce external auditing and supervision as a "fourth line of defense," enhancing transparency and proactive risk management with public reporting. Modify the Loss Allocation waterfall by prioritizing Clearing fund deposits of non-defaulting firms over OCC's pre-funded financial resources, promoting self-regulation among Clearing Members. These recommendations aim to address the concerns outlined and contribute to a more transparent, accountable, and stable market environment. I urge the SEC to thoroughly reconsider the proposed rule, taking into account the potential implications on market participants and the broader financial system. Thank you for your attention to this matter.